When selecting investment products, investors often look for certain characteristics in a product depending on what stage of life the investor is in. For example, a younger worker may more likely invest in equities, such as stocks and stock based mutual funds that offer high potential returns, but also involve the risk of losing the investors principal. As an investor ages, often times a product that offers more security of principal is favored, even if the return on investment is not as high. One particular type of high security product that many investors turn to later in life are annuities. An annuity allows an investor an obtain an income stream for a period of time, easing concerns the investor may have about outliving their savings.
Several types of annuities exist, each offering an investor different benefits, but each also having certain drawbacks. For example, a fixed annuity gives an investor certainty that they will be receiving a specific payment each month for the term of the annuity. Some fixed annuities additionally offer some type of increasing payment, in an attempt to account for inflation. One drawback of a fixed annuity is that if investments are performing well, the investor does not benefit, as the annuity payment is fixed at the time of purchase.
In order to attempt to obtain investment gains, an investor may select a variable annuity. In a variable annuity the payment the investor receives varies, depending on the return generated by the investment of the annuity. Thus, when the investments are performing favorably, the investor may receive a larger payment, however, if the investment is not performing well, the investor's annuity payment may decrease. If the investment performs very poorly for an extended time, the variable annuity provides an investor with much less income than had been anticipated by the investor when the annuity was purchased. Thus, an investor risks having the income from a variable annuity fall below a level needed to meet living expenses.
Further, if an investor selects an annuity that pays income for a certain period of time, the investor runs the risk of outliving the annuity, and if the investor chooses an annuity that offers payments for life, the amount of each payment will likely be reduced to account for the risk the annuity company faces of the investor living longer than actuarial data predicts. If a payment for life annuity is chosen, and the investor does not live as long as actuarial data predicts, the total amount of payments the investor receives from the purchase of the annuity may not even equal the cost of the annuity. Annuity products do exist that guarantee a certain number of payments, or guarantee that the initial purchase price of the annuity will be returned to the purchaser, but once again, these guarantees often reduce the amount of each payment.
Therefore, with current annuity products, an investor often must choose between a product that offers the potential of higher returns of a variable annuity or a product that offers the safety of a fixed annuity. Similarly, an investor often must choose between a product that will provide a payment for a fixed period, and risk outliving the benefit, or a payment for life, and risk passing away prior to receiving benefits equal to the purchase price of the annuity.
Thus, a need exists for an investment product that offers attractive features of various types of annuities, while limiting the unattractive aspect of any particular annuity, offering the ability to guarantee a payment while offering the opportunity to benefit from market gains and offering a cash value or death benefit available to the investor.
The present invention is provided to solve the problems discussed above and other problems, and to provide advantages and aspects not previously provided. A full discussion of the features and advantages of the present invention is deferred to the following detailed description, which proceeds with reference to the accompanying drawings.